Aegean anxious to end

 - November 26, 2007, 12:08 PM

Aegean Airlines chief operating officer Antonis Simigdalas has to rummage among framed certificates stacked by his desk to find the Greek regional’s independent air-carrier licence (ACL), the first issued in Greece. A man in a hurry, the airline executive has had no time to mount the document on his Athens office wall.
When issued in 1992, Greek ACL No. 1 permitted then-Aegean Aviation to operate air-taxi service for up to 14 passengers, but subsequent European deregulation permitted the fledgling carrier to grow rapidly. Now a “proper” scheduled carrier and the largest private operator in Greece, Aegean Airlines has flown head-to-head against flag carrier Olympic Airways since May 1999. The airline has grown to take a claimed 40 percent of the Greek market, flying 15 aircraft on 28 routes to 28 destinations, the young operator’s dynamism winning it the 1999 best Greek private airline award and third place in the 2000-2001 European Regions Airline Association (ERA) Airline of the Year competition.

After two years of rapid growth during which it acquired two other local operators, Aegean is rationalizing its fleet and route network while waiting for the delayed sale of Olympic Airways and its regional-airline subsidiary, Olympic Aviation. While that privatization should provide more opportunities, it remains a source of frustration for Simigdalas, because of what he refers to as the Greek government’s hesitancy to adopt the provisions of European Union law. “We have been treated totally unfairly in a market with grotesque fare and capacity distortions and government interventions,” said the Aegean COO.

But the wait has given Aegean time to consolidate its acquisition of Cronus Airlines and Crete-based Air Greece, while the sale of Olympic could release additional routes on which the flag-carrier now dominates with bilateral agreements. The airline is considering requirements for a 70-passenger turboprop for domestic and short-haul routes and a 100- to 130-seat jet to serve high-density routes and medium-haul destinations.

Aegean is used to waiting. Having first applied to fly inter-island routes in 1965, Aegean waited 25 years for approval to provide passenger service in a partially liberalized Greece during the early 1990s (see box: Aegean’s genesis on next page). Simigdalas, one of the airline’s founders, expected Aegean Aviation to evolve into business-flying activities rather than into regional operations. European liberalization, the catalyst that enabled it to undertake scheduled passenger services, has seen Greek air transport erupt in the past two years with 24 percent compound growth in passenger numbers, as Aegean’s traffic doubled in each period.

Despite European deregulation, only Olympic got permission to offer Greek scheduled services until the beginning of 1999. While subsequent market growth benefited start-up operators, Olympic has fought back by massively increasing capacity, said Simigdalas. Commercial director Stavros Daliakas, a former Olympic manager, cites services to Corfu as an example: “Olympic flew twice a day in winter. When Aegean started, they went to four a day at a 45 percent load factor. So who pays for the loss?”

To facilitate rapid expansion, Aegean sold a majority stake to the Vassilakis Group, which then acquired Crete-based Air Greece in October 1999, combining operations six months later. After Thessaloniki, Crete is the second most-important domestic destination from Athens, providing a million passengers a year, of which Aegean carries about 60 percent. Aegean replaced Air Greece’s noisy Fokker 100s with two additional Avro RJ100s. This year’s acquisition of Cronus Airlines has added international routes to France, Germany, Italy, and the UK, and six medium-haul Boeing 737s. Next year, plans call for three 737s to be dedicated to Cronus charter operations, the others being upgraded and repainted for Aegean scheduled routes.

Redefining “Regional”
The airline’s rapid development has begun to challenge traditional images of what constitutes a regional carrier, Aegean having grown from a domestic operation to a pan-European airline. Simigdalas regards fixed definitions of a regional carrier–for example, one flying up to 100 passengers on a turboprop airliner over routes of, say, up to 90 minutes–as artificial. “A regional is an airline that supplements prime carriers in capacity and destinations,” he reasons.

Meanwhile, the Greek market remains “contaminated” by protectionism for Olympic, according to Vassilakis Group president and managing director Theodore Vassilakis. Historically, Olympic and Greek civil aviation have been perceived as synonymous, “so the government only works for Olympic,” said Vassilakis. “It’s very hard to change that attitude. [It] should have been privatized two years ago, but the government keeps postponing the move.” Daliakas believes Greece can support two, “but not more,” competing carriers, with Aegean aspiring to be “the quality airline, the company of choice.”

Because it is “probably over-extended, running everything from a pilot’s school with small Cessnas to Airbus A340s going to Australia,” Olympic will have to rationalize, said Aegean network-planning manager Tassos Raftopoulos. The longer Greece delays commercialization, the more money Olympic and other carriers will lose. “They don’t care about offering a fair deal, only about collecting more money from the government tax office,” said Vassilakis. “Olympic is not operated as a business, but the political cost of making the proper move [to privatize the airline] is too high for any government to do.

“We support fair competition and an open market in all services. The EU has helped in providing a directive on which we can build a long-term business plan, which is a comfort,” he added. “But Olympic is taking a long time to adjust; they don’t even have a balance sheet, so it is impossible to compete.” Once future ownership of Olympic is resolved, “we’ll be able to plan for ten years. There is little we can do now.”

The Vassilakis Group brought a wealth of customer-service experience to Greek aviation, being Greece’s largest car-hire company and selling 70,000 new cars a year. Now, it wants to provide the same service to airline passengers at competitive fares. Vassilakis acknowledges the challenge: “We are rationalizing three entities [Aegean, Cronus, and Air Greece] and must put the right people in the right place and become one identity.”

Everything is being examined, said Simigdalas. “We have studied economies of scale, but there are none in [people] areas such as crews and maintenance support,” added the COO. Absorption of Air Greece has provided such economy-of-scale benefits because its Crete-based administration has moved to Athens. Aegean also hopes to benefit from renegotiation of suppliers’ agreements.

Aegean has completed roughly 50 percent of its consolidation with Cronus. It has rationalized domestic routes, and from this month all flights will use Aegean codes and be booked through one reservations system. International routes will continue as “Aegean Cronus” for two years. The airline expects to gain further benefits through the coming European winter season.

New destinations under consideration include Bologna and Milan in Italy and Berlin and Hamburg in Germany. The latter destination is a compromise route since it is at the limit of Avro RJ range but might not attract enough traffic for a Boeing 737. Raftopoulos said Aegean also must consider markets closer to home, such as the Balkans, Turkey and Cyprus.

Big Hub Avoidance
Aegean expects to focus more on regional operations that avoid major hub airports, Vassilakis told AIN. “We will concentrate on European services to secondary cities such as Dusseldorf, Stuttgart, and Munich in Germany, but not to the principal airport at Frankfurt, and on domestic operations, plus some charter work,” he said.
Aegean’s rationalization assumes fleet simplification over the next three to five years, with selection of one jet and one turboprop to replace the current three types. Additional jets will be required only if it expands the charter fleet. The airline is negotiating with manufacturers, but it will make no decision until the privatization of Olympic makes clear what capacity it will need.

Aegean’s fleet comprises six owned BAE Systems Avro RJ100s, all bought new. The airline considered the Boeing 717-200, but only the RJ100 had gained certification by the time it needed the airplanes. “Being five-abreast, the Avro met our cabin specification,” said technical director Thanos Pascalis. “It is also quiet.” Simigdalas concedes that he did not foresee the RJ100’s “very, very satisfactory” reliability. All the aircraft fly 4,000 cycles a year at an average of 40 to 50 min per sector and with a 99.3-percent dispatch reliability.

Aegean leases the three ATR-72 turboprops inherited from Air Greece from France’s TAT Group. It uses them mainly on domestic routes away from Athens. Aegean has kept Cronus Airlines’ two Boeing 737-400s and four -300s, but phased out the Air Greece Fokker 100s.

Ironically, Aegean uses 737s–its largest aircraft–for local service rather than for international operations. “We need 135 seats for domestic flights, but 100 for long-haul service,” said Vassilakis. “We need capacity, not frequency. It is a classic market, with high levels of morning and evening peak traffic.”

Little Interest in RJX
Vassilakis told AIN that re-equipment plans possibly could see some turboprops retired while Aegean retains the Avro RJs. He said the choice of a 130-seat aircraft would directly pit the Airbus A320 against the Boeing 737. Asked about the new Avro RJX now in flight test, Simigdalas said Aegean does not need the available longer range and that the improved fuel consumption is less evident over shorter stages.

He sees no immediate opportunity for a small regional jet, emphasizing that “nothing is as economical as a 70-seat turboprop over our average stage length of 160 nm.” But airline president Vassilakis does not exclude the possibility: “We are looking at the economics of 50 seats. One must consider the profile of all routes; we might lose by flying jets on short routes, but make money from harmonization of services.”
Aegean flies most domestic Greek services with ATR-72s, although “thick” routes such as Athens-Thessaloniki and Athens-Heraklion (Crete), which require higher capacity and have a high content of business travellers use jets. A highly centralized government in Greece translates into a high concetration of regional traffic to and from the capital city. “We have to compete in a competitive market, so ATR-72s are used on inter-peripheral routes,” said Simigdalas. “Only two of the 11 Athens routes use turboprop service, while five of the point-to-point routes to provincial centers are mainly turboprop.”

In planning future destinations, Simigdalas looks for routes that offer “dynamic traffic” while introducing connecting passengers. To some extent the airline is a victim of Greek geography and political circumstance. Only 25 percent of its catchment area–the northwest segment that includes most of Europe–is deregulated. The need for 1,500-mi range to reach London defines the need for an aircraft such as the Boeing 737 or Airbus A320.

Under traditional definitions of regional carriers, Aegean probably would be restricted to services no farther away than Italy, with no access to primary markets in Germany, France and the UK. Outside Europe, almost all of Aegean’s remaining catchment area is regulated and covered by bilateral agreements that permit no competition against flag carriers, or is so poor economically that local citizens in, say, North Africa or the Balkans cannot afford to travel.

Despite its international flights being routed across the heart of Europe, Aegean does not echo other operators’ perennial complaints about airspace congestion. Rather, it faces overcrowding on the ground. “The problem is insufficient capacity at all Greek airports, except the new one in Athens– which is the only one not owned by the government,” said Vassilakis.

Adjustment to Spata
To accommodate any teething troubles at the airport’s formal opening at Spata six months ago, Aegean reduced its flight schedule by 20 percent and increased turnaround times, explained flight operations director Capt. Zisis Pehlevanoudis. Spata has been “good news,” according to Pehlevanoudis, with private ownership having created “a different culture [and] attitude.” Apart from initial adjustments to accommodate greater distances involved in moving passengers to remote aircraft stands, the transfer from the “old” airport has been smooth.

A major boon has proven to be the introduction of air bridges to which Aegean did not previously enjoy access. The bridges allow 20-min turnarounds unless aircraft are parked away from the terminal, necessitating a 10-min allowance for bus tranfers to and from the gate. On August 15 Aegean became the first airline to demonstrate 100-percent punctuality throughout the day at the new airport.

Most other Greek domestic airports present “very significant” problems, according to Simigdalas. “Since they are run by the Civil Aviation Authority (CAA), which is historically tied to serving Olympic, they are not customer-oriented,” he said. “Some smaller airports operate inflexible hours since their activity is tied to Olympic schedules. For example, one airport opens only to serve Olympic’s midday Athens flight, but Aegean has mobilized public opinion to force change.

“We were flying an Avro RJ100, we recognized the market need for morning and afternoon services with smaller ATR turboprops, but the CAA said ‘No’ because the airport opened for only two hours,” said Simigdalas. “Local citizens went to the authorities, and the CAA changed its position.”

Other areas in which Aegean faces bureaucratic chicanery include aspects of infrastructure and general procedures. “We have to fight to obtain airport office space,” said Pehlevanoudis. Despite market liberalization and other modernizing developments, Greek airlines still must provide a quadruplicate “general declaration” for health and crew- and passenger-manifest purposes in what Simigdalas dismisses as “dinosaur” procedures. But having seen recent progress, officials are optimistic. “Change must come. The only question is ‘When?’,” said technical director Pascalis.
While Greece continues to introduce European Joint Aviation Authorities (JAA) standards, Aegean operates under mixed regulations because the country has not implemented all the JAA requirements (JARs). The airline holds a JAR 145 licence used “in conjunction with some old national rules,” roughly equivalent to U.S. Federal Aviation Regulations Part 121, said Pascalis. Greece adopted JAR Ops standards only a month ago, and other Greek non-JAR rules still apply.

The airline employs some 1,100 people, of whom 500 work for the old Cronus operation now being absorbed into Aegean. Eighty-five pilots fly in the Aegean fleet, supported by 104 cabin staff. Simigdalas foresees no imminent shortage of pilots, and none at all if Olympic flight crew lose their jobs after the sale of the state-owned airline. “It has been a buyer’s market,” he said.

Since Greece has not yet adopted JAA flight-crew licensing standards, local officials must validate European pilot qualifications. Aegean has taken on “lots” of former Olympic pilots, who are “primarily young and ambitious and see themselves as confined within Olympic.” Aegean is too young to have seen any appreciable pilot turnover. Some pilots come from military services, but Simigdalas is more concerned with attitude and personality than immediate qualifications: “Our selection criterion aim to get people with the right mentality and character. We can instill pilot skills.”
Aegean pilots earn less than those at flag-carrier Olympic, although officials claim the regional airline flies in a safer environment. “Our pilots are about twice as productive as those at Olympic,” said Simigdalas. “They fly 750 hours a year on sector lengths averaging less than an hour.”

New-hires start as probationary copilots for a year before becoming junior copilots. On recommendation of the chief pilot (and according to needs) the next stop
is senior copilot before rising through junior captain and captain to senior captain. The latter rank includes check pilots and instructors.

Aegean requires a minimum of 1,000 hr total flight time, with a preference for those with a turboprop type rating. In the “very rare” case of a direct-entry captain, the requirement rises to 4,000 hr, including 2,000 hr in command. “We take care to ensure we have the right mix of experience at the co-pilot level,” said Simigdalas. Flight-time limitation (FTL) has until very recently been covered by mixed regulations. Before last month [September], Aegean operated under FTL rules essentially similar to FAR Part 121, but now flies under European JAR Ops 1 regulations adopted by Greece this year.

Aegean employs about 80 engineers and technicians, with about 15 more people in flight operations. While Aegean performs JAR 145-approved line maintenance and minor servicing (and even some third-party line maintenance), it outsources annual ‘C’ checks and engine overhauls along with overhaul of small components, said Pascalis. “There is no reason [for us] to do the work if it’s available more cheaply elsewhere,” he said, although Aegean maintains items such as landing wheels are in-house.

Until recently BAE Systems performed Aegean’s Avro RJ100 C checks, but the airline is considering alternative arrangements. Lessor TAT provides ATR-72 maintenance until leases expire in 2003. Aegean sends engines to Crossair in Switzerland and to Lufthansa in Frankfurt, respectively.

Skills Shortage
Simigdalas acknowledges “some” shortage of engineers in Greece, which has “little skills history.” Aegean imports a number of planning and maintenance-control engineers, for example, but hires many “ab initio” engineers and line mechanics locally.

Aegean has established continuous in-house training that extends beyond line maintenance to areas such as technical records and trend monitoring. Simigdalas foresees a shortage of mechanics by 2003, most acutely in departments such as avionics. Mechanics’ and engineers’ pay is close to that of Olympic, according to officials.

Aegean makes full use of manufacturer flight training for Avro RJ100 crews. BAE Systems provided initial factory-based training under “a syllabus based on that of a major carrier,” said Pehlevanoudis. During the first three months of operations, the manufacturer provided a line-training captain. Recurrent training is conducted at the factory, although recently Aegean has contracted for training on the Turkish Airlines RJ simulator in Istanbul. Ground-school work is provided through computer-based training at Athens.

Looking forward, Simigdalas perceives neighborhood factors beginning to influence developments. “The environment is becoming an issue, though it is not as bad as elsewhere in Europe.” Pascalis points out that the new airport has introduced new standards: “There is very strict, tight control over the use of fluids in, for example, washing and cleaning aircraft.” (Given the Mediterranean climate, Aegean has no need for aircraft de-icing.) Noise rules aimed at outlawing non-Chapter 3 aircraft proved a factor in Aegean’s release of the Air Greece Fokker 100s, and could hit Olympic Airways’ use of older Boeings.

The delayed sale of Olympic, which has given more time for the regional to consolidate operations, has helped Aegean’s re-equipment plans. Current plans include the introduction of three domestic destinations and three more turboprops. “We are getting more and more experience from three years of documented service with the 737, RJ100 and ATR-72,” said Vassilakis. Is he optimistic? “Yes, or I would have quit. We have about six months in which to resolve things [before Olympic is privatized], but we must maintain enthusiasm among everyone every day.”

The regional-airline president does not rule out Aegean’s becoming a partner with the national airline. “We want to provide safety, quality, and punctuality,
to attract the right clients who will come back,” concluded Vassilakis, acknowledging that Aegean’s European routes still lose money because of “unfair” competition from Olympic. “We cannot charge the right fares and there is over-capacity because of government policy,” said Vassilakis. Aegean’s introduction of business class on domestic routes, with novel fringe benefits such as a day’s free car hire, provides evidence of its plans for premium-quality travel. It also plans a frequent-flyer loyalty program, along with remote check-in.

For Simigdalas, Aegean’s great need is for “a clear market.” While liberalization has opened the European market, his frustrations continue. “Olympic [remains] the designated Greek carrier to all destinations that are regulated,” he said. But he sees “significant potential” for new destinations, particularly in the Commonwealth of Independent States, Eastern Europe, the Middle East, and North Africa.

After the two-year-old fledgling Greek regional placed third in the 2000-2001 European Regional Airline of the Year awards, it has entered the competition again. If Aegean wins, Antonis Simigdalas might find time to mount both that award certificate and the airline’s AOC on his office wall–while waiting for Olympic Airways to be privatized.